Predatory lending still higher with minorities

Blacks and Hispanics more likely than whites to be victims of predatory lending

We have written extensively about the problem of predatory lending. While loosely defined, it is really a case of lenders trying to take advantage of people who feel that they have no other choices when it comes to borrowing money. These lenders know that their customers have little choice, usually due to bad credit, and they set out to take financial advantage of these customers in every way possible. Higher fees, higher interest rates, and prepayment penalties are among the most common signs of predatory lending.

A new study by a the National Community Reinvestment Coalition demonstrates what many consumers and people in the lending industry already know - that lenders are much more likely to take advantage of minorities than they are of whites when it comes to offering loans. The study, which took two years to complete, involved sending couples to meet with various lenders in order to apply for a home loan. As a rule, the minority couples had slightly better credit than did the white couples, but the results were generally the same. The minorities were offered deals that weren’t as good by mortgage brokers.

Here are some examples of how these scenarios worked out:

• Mortgage brokers, who charge a fee for finding a loan for a client, were less likely to discuss their fees with minority customers than they were with white customers. In fact, white customers were two and a half times more likely to receive the fee information than their minority counterparts.
• Minorities were offered fewer loan options and were more likely to be offered an adjustable rate loan rather than a fixed rate loan. Most white shoppers were offered lower-cost, fixed rate loans as a first choice.
• White loan shoppers were twice as likely to be offered low-cost conventional loans as minorities, who were more likely to be offered higher-interest subprime loans. In addition, brokers spent more time discussing all options with whites than they did with minorities.

All in all, white shoppers were likely to get more time, better explanations, lower interest rates, and a greater variety of loan options than were minority shoppers. Minorities were certainly offered loans; they just weren’t offered good ones, even if they had the credit to justify them. This problem has been going on for quite some time; it’s hardly a new phenomenon. But solutions are far from being either simple or obvious. While it seems reasonable that anyone with a solid credit history should be offered a loan that is in line with that credit, it seems not to be the case in practice.

Anyone who feels that they aren’t being offered the best possible deal should consider shopping elsewhere. As the real estate market slows down, lenders will become more competitive. They aren’t offering as many loans to anyone right now, so they should be more willing to accommodate everyone. If you don’t like the deal you are offered, go elsewhere, and let it be known that you are going elsewhere and why. Lenders who practice discriminatory lending practices need to be informed that consumers are on to them and that such practices are not going to be tolerated.